What A Deal! Treasury Offers 0 Pct. Interest On Bonds!
The Treasury Department is now selling savings bonds that pay an interest rate of 0 percent, The Post's Binyamin Appelbaum reports.
Give the government $5,000, and six months from now, you’ll get exactly $5,000.
I Savings Bonds, or “I Bonds,” are designed to keep pace with inflation. The value of money tends to deteriorate over time; $100 now buys less food than $100 a decade ago. The interest rate on an I Bond is calculated to give the investor enough additional money to buy the same amount of food.
The interest rates for new bonds are fixed every six months, then adjusted at the beginning of May and November.
This morning, Treasury announced that bonds sold through the end of October carry an initial rate of 0 percent. It is the first time rates have fallen to zero since the inflation-adjusted bonds were introduced in 1998.
The reason? Treasury forecasts deflation over the next six months, the highly unusual circumstance in which the purchasing power of money actually increases.
If Treasury is right, this could actually be the best possible time to invest in I Bonds, because the interest rate never falls below 0 percent. In inflationary times, I Bonds simply keep pace. In deflationary times, I Bonds actually increase in value.
$100 in six months will buy more food than $100 now.
May 1, 2009; 3:21 PM ET
Categories: The Ticker | Tags: I Bonds, deflation, inflation, treasury
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